Annual Review
Weather Risk Insurance for Small Farmers in the Caribbean
Date started:
Date review undertaken:
March 2012
March 2013
Instructions to help complete this template:
Before commencing the annual review you should have to hand:
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the Business Case or earlier project documentation.
the Logframe
the detailed guidance (How to Note)- Reviewing and Scoring Projects
the most recent annual review (where appropriate) and other related
monitoring reports
key data from ARIES, including the risk rating
the separate project scoring calculation sheet (pending access to ARIES)
You should assess and rate the individual outputs using the following rating scale
and description. ARIES and the separate project scoring calculation sheet will
calculate the overall output score taking account of the weightings and individual
outputs scores:
Description
Outputs substantially exceeded expectation
Outputs moderately exceeded expectation
Outputs met expectation
Outputs moderately did not meet expectation
Outputs substantially did not meet expectation
Scale
A++
A+
A
B
C
Introduction and Context
What support will the UK provide?
The UK will provide a contribution of up to £1.5m in 2011/2012 to help develop and
introduce affordable catastrophe weather insurance to protect farmers in the Caribbean
against the impacts of natural disasters and climate change. Initially, the insurance will be
offered to banana farmers in the Eastern Caribbean, but the intention is to expand to other
crops and countries within four years.
DFID will make a one-off payment to a multi-donor trust fund at the Caribbean
Development Bank (CDB) for the Agricultural Risk Insurance programme. The initiative will
be managed by MiCRO, a micro-insurance organisation established with DFID support in
March 2011. The trust fund will act as the capital base for the new insurance scheme, as
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well as meet the costs of developing, managing and monitoring the new re/insurance
product(s) and expanding its range to other crops and countries.
Why is UK support required?
Background
The Caribbean is extremely vulnerable to natural disasters - between 1991 and 2005,
seven of the top 20 greatest losses to natural disasters worldwide (measured as a
percentage of GDP) were in the Caribbean. Disaster losses are likely to be exacerbated by
the effects of climate change, including sea level rise and increases in extreme high and
low rainfall events.
Building resilience to climate change and disasters is therefore a core pillar of DFID
Caribbean’s 2011-2015 Operational Plan, including through risk transfer and insurance to
build resilience, helping the most vulnerable manage disaster risks and recover quickly
after disasters. The DFID Humanitarian and Emergency Response Review (March 2011)
was also strongly supportive of insurance.
The initiative will contribute to the
implementation of global climate change strategies and the decisions agreed in December
2010 at the United Nations Climate Change Conference in Cancun.
Crop insurance in the Caribbean
The agricultural sector in the Caribbean has been hit hard by the changing import policies
in developed economies, particularly European trade liberalisation, and the
disproportionate impact of climate change and natural disasters such as drought,
hurricanes, volcanoes, and floods on the region. Earlier crop insurance schemes have
failed to provide effective and comprehensive cover, but the need for effective risk
management is widely acknowledged as a key barrier to sustainability in the agricultural
sector (Annex 1). In 2010, the weakness of the existing indemnity scheme for banana
farmers in Dominica, St Lucia and St Vincent (WINCROP, Annex 2) was exposed after
Hurricane Tomas destroyed around 80% of the banana crop in St. Lucia and St. Vincent.
Many thousands of small scale farmers were left with no income for eight months,
dependent on income support from the Government (St. Vincent) or charities (e.g. Red
Cross in St. Lucia).
Since Hurricane Tomas, WINCROP has struggled to obtain affordable re-insurance.
Switching its coverage from (traditional) indemnity insurance to mainly parametric
insurance (with a pre-agreed payout triggered by a measurable weather event) would
mean that risk could be more easily quantified. This would enable WINCROP to obtain reinsurance (protecting it from crippling multiple claims after a serious weather event) and
remain viable. Parametric insurance has additional benefits too – including that payments
do not require “loss adjustment”, so can be made promptly, helping farmers to recover
quickly.
The intention is therefore that WINCROP becomes a client of MiCRO, the region’s first
hybrid (parametric plus basis risk) catastrophe re/insurance mechanism (supported by
DFID, Switzerland and the Caribbean Development Bank (CDB). MiCRO was established
in March 2011 with a “cell” structure, allowing it to provide insurance to discrete groups of
users or locations. The first “cell” provides insurance cover to nearly 60,000 micro-finance
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borrowers in Haiti (and paid out over $1.8 m in claims in the first year of operations). The
intention now is that donors would earmark additional contributions to MiCRO through a
dedicated trust fund at the CDB, allowing more cost-effective coverage for WINCROP and
its clients. DFID is the first donor to express interest for this new Agricultural Insurance cell,
but others are expected to join us (as happened in Haiti) including the CDB.
WINCROP’s previous losses would be ring-fenced from any new support, with a new reinsurance programme underwritten by MiCRO taking most of the risk from WINCROP in a
cost-effective way. Given that in the past, WINCROP has had some difficulties paying
claims on time because of cash flow problems (even though WINCROP has settled all
claims once remittances were received from reinsurers), there could be reputational risks
around MiCRO and DFID association with WINCROP, but this should be manageable
(especially if CDB becomes involved in more wide-ranging assistance to the organisation).
The proposed support will address three key needs:
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Building the resilience (and accelerating the recovery) of small farmers against
more volatile weather (wind and rain in particular). The majority of the banana
growers in the Windward Islands are small farmers with holdings of 0.5 to 5
hectares and struggle to recover after external shocks. Growers who depend on
one crop are most vulnerable, but keen to take up affordable and effective
insurance if available.
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Promoting insurance as a risk transfer mechanism that protects the livelihoods of
the poor and allows them, because they are insured, to consider new and
potentially more productive investment opportunities (e.g. export crops).
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Allowing the most cost-effective solution for regional agricultural insurance to be
developed, building on the only existing agricultural insurance mechanism in the
Caribbean (WINCROP) and the principles of index-based (parametric) design
successfully implemented at the national level by the Caribbean Catastrophe Risk
Insurance Facility (CCRIF) and individual level through MiCRO in Haiti.
What are the expected results?
Agricultural livelihoods in the Caribbean will be more resilient to climate change and natural
disasters because catastrophe insurance will help protect the livelihoods and assets of
farmers in the Caribbean from severe weather events. Rapid insurance payouts will speed
their recovery and reduce the need for post disaster assistance that is expensive, often
slow to arrive or absent.
The project will achieve the following headline results:
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Within four years, up 15,000 farmers to have their livelihoods protected (equating to
approximately 50,000 beneficiaries including dependents). The scheme will be
operational for the 2012 hurricane season, initially offering insurance to WINCROP’s
existing client base of 3,000 banana farmers. All of the initial 3,000 would be
attributable to DFID assistance, as well as the first phase expansion to other
countries (for instance, banana farmers in Jamaica and Belize). As the insurance
coverage spreads to new products and countries, the number of growers insured
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would increase. Other donors joining the scheme would affect the proportion
attributable to DFID assistance (final attribution therefore to be confirmed).
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Demonstrate the effectiveness of parametric insurance as a disaster risk reduction
and climate adaptation tool to protect and enhance agricultural livelihoods.
The project will:
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Reduce vulnerability through Disaster Risk Reduction training for farmers
After a disaster, provide farmers with more predictable, timely funds when they need
them to pay for emergency needs, clearance and replanting. This will reduce the
need for them to adopt other coping strategies, such as using their savings or selling
their assets (which would make them more vulnerable to future shocks);
Help local economies and trading systems to re-establish more quickly after
disasters;
Boost productivity by offering protection against disasters, financial decision-making
by farmers (e.g. whether to take out a loan, whether to purchase assets) can be
more predictable and productive. The costs/ collateral needed for loans would also
decrease if lenders could be confident about the insurance cover in place.
It is hoped that success with WINCROP would create a demonstration effect, prompting
replication / scale up. Robust monitoring will be in place from the outset, incorporating
baselines that allow an assessment of differences made to livelihoods, local economies
and future disaster impacts. Emphasis will be placed on evaluating affordability (including
options for subsidies if needed) and cost benefit to people taking out the insurance.
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Section A: Detailed Output Scoring
Output 1: MiCRO cell for agricultural insurance established, operational and sustainable
Output 1 score and performance description:
Score: B (Outputs moderately did not meet expectation)
Progress against expected results: After a delayed start, product development work is now
underway. The Inception Study (context – agricultural production and potential aggregators)
has been received and discussions are underway with the Caribbean Development Bank to
finalise the Grant Agreement for MiCRO. Overall progress against agreed Workplan timetable
is several months behind schedule.
Output indicator 1.1: Extent to which MiCRO is able to offer parametric insurance coverage.
Milestone: Initial inception/feasibility work for agricultural insurance complete
This target was partially met. An Inception Study providing comprehensive contextual
background (agricultural production, potential aggregators etc) has been drafted and will soon
be finalised. More detailed feasibility work will then be done as part of the Retail Market
Analysis and product development.
Output indicator 1.2: Extent to which MiCRO agricultural cell is sustainable.
Milestone: At least $1m of additional donor contributions received.
The target was met. CIDA has confirmed a contribution of Can $1.2m (US$1m) towards the
development and implementation of the agricultural insurance (to be paid into the Trust Fund
at CDB by the end of March 2013).
Recommendations:
No adjustment to the milestones required for now, but close attention to progress will be
needed to ensure maintain momentum (especially as MiCRO technical team will also be so
busy developing the new Latin America cell). This is a heavily weighted output – it would
probably be more representative to reduce the weighting to 40%, with the weighting of Output
2 also reduced and Output 3 (covering expansion to other crops and countries) increased
correspondingly.
Impact Weighting (%): 50
Revised since last Annual Review? N
Risk: Medium
Revised since last Annual Review? N
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Output 2: MiCRO offers parametric catastrophe insurance and DRR support to all clients
Output 2 score and performance description:
Score: B (Outputs moderately did not meet expectation)
Progress against expected results:
The initial product development work was slower than expected to start, but the Inception
Report has now been finalised and preparations for Phases 2 and 3 of the product
development workplan are underway.
Output indicator 2.1: Extent to which WINCROP's parametric insurance and DRR support is
in place
Milestone: Likely options to move forward identified
This milestone has been partially met. The Inception (background/context) Study is complete,
and a workplan has been agreed for product development. Some implementation options
have been identified (for example, through WINCROP, insuring bananas in the eastern
Caribbean or jointly with World Bank insuring coffee in Jamaica), but no specific
recommendations have been made.
Output indicator 2.2: Extent to which the insurance cover represents value for money for
those insured
Milestone: Value for money metrics being investigated as part of Retail Market Analysis and
Product Design
The target was not met, as the Retail Market Analysis has not yet begun (workplan is
approximately two months behind schedule).
Recommendations:
No change to the milestones is required at this time. The initial product development work
was slower than expected to start, but should move forward now so that insurance cover is in
place by March 2014 as planned. Close supervision is recommended to monitor progress and
maintain momentum.
The weighting of this Output seems too high, and should be reduced to 20%.
Impact Weighting (%): 30
Revised since last Annual Review? N
Risk: Medium
Revised since last Annual Review? N
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Output 3: Parametric insurance scheme rolled out to other crops and countries in the
Caribbean
Output 3 score and performance description:
Score: B (Outputs moderately did not meet expectation)
Progress against expected results:
Output indicator 3.1: Extent to which WINCROP expands or MICRO broadens coverage to
other crops and countries
Milestone: MiCRO feasibility study and business planning complete, including needs
assessment of other countries and crops for insurance
This milestone has been partially met. The draft Inception Study provides a thorough
overview of agricultural production across the Caribbean, including others crops for insurance
(and approaches have already been made to the EU re bananas and World Bank re coffee
insurance), and will be finalised shortly. A workplan has been agreed for the development of
the agricultural insurance (although progress has been slower against it than planned).
Detailed product design work has not yet started.
Recommendations:
Product development work has begun, but progress has been slower than expected. The next
milestone (insurance cover in place for 4 crops or countries) should be revised downwards to
cover in place for at least one crop and country by March 2014, to reflect a more realistic pace
of implementation. The overall target for expansion to five crops or countries by 2015 is still
attainable, so does not need to be changed. The risk rating for this however, should be
increased to High. Close supervision will be necessary to maintain momentum.
Success under this output (expansion to other crops and countries) is too low. It should be
increased to 40%, balanced against reductions in the weightings of Outputs 1 and 2.
Impact Weighting (%): 20
Revised since last Annual Review? N
Risk: Medium
Revised since last Annual Review? N
Section B: Results and Value for Money.
1. Progress and results
1.1 Has the logframe been updated since last review?
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No – this is the first annual review. However, the logframe has been updated since project
approval as the original version relied heavily on reinsurance for WINCROP being agreed in
2012. This did not happen for reasons outside of the project’s control (insurance premia not
paid at WINCROP, adequate data not available from WINCROP).
1.2 Overall Output Score and Description:
All outputs scored B, so the overall output score was:
B (Outputs moderately did not meet expectation).
1.3 Direct feedback from beneficiaries
The insurance product is still in the design stages, so direct feedback from insured farmers is
not yet available. The senior regional advisory panel has also not yet met (although feedback
has been commissioned, but not yet received, on the Inception report).
MiCRO presented the insurance concept to several Eastern Caribbean Permanent Secretaries
and Ministries of Finance and Agriculture in June 2012. Their feedback was extremely
positive (evidenced by their agreement to allocate around €200,000 from their Banana
Accompanying Measures programmes to MiCRO).
1.4 Summary of overall progress
After a relatively slow start in early 2012 (whilst MiCRO decided what approach to take on
product development), the programme has now gained momentum. Initial scoping work
(agricultural context, potential aggregators) has been collated in the Inception Study and
preparations are underway for Phases 2 and 3 (grant agreement with CDB, detailed Retail
Market Analysis and product design). Partnerships with regional organisations (such as the
Inter-American Institute for Co-operation on Agriculture (IICA)) are being developed, and
potential joint initiatives (for example with the World Bank on insurance for coffee in Jamaica)
are being explored. The MiCRO technical team and Board are supportive of the concept.
The multi-donor trust fund to support the development and implementation of the agricultural
insurance is in place (agreed by the CDB Board in December 2011). Other donors have also
shown considerable interest – CIDA has confirmed a general contribution of US$1m (including
support for monitoring, evaluation and product development, to be paid into the Trust Fund at
CDB) and the EU has earmarked €600,000 as part of its Banana Accompanying Measures
(BAM) programmes in St Vincent, St Lucia and Dominica.
1.5 Key challenges
The programme has met several key challenges so far:
 Agricultural insurance is complicated. Differences of opinion within MiCRO about the
best overall approach for product development.
 Capacity constraints and profile - pressure on a small number of technical staff faced
with competing priorities within a rapidly expanding insurance field in the Caribbean.
MiCRO’s “core” business to date has been micro-insurance (for micro-finance).
Parametric insurance for small farmers is a related but new field and attention within
MiCRO has inevitably been heavily on the re-design of their existing policy cover and
agreeing a significant scale-up of that work into Central America.
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1.6 Annual Outcome Assessment
At the outcome level, the programme is expected to protect small farmers in the Caribbean
and accelerate their recovery from disasters. It is too early to report against the outcome
indicators (number of policyholders and speed of payouts) as the insurance cover is still under
design. However, after a relatively slow start, good progress is now being made, a workplan
and Inception Study are in place, another donor is on board and preparations are being made
for full product development. The programme is expected to be able achieve its targets.
2. Costs and timescale
2.1 Is the project on-track against financial forecasts: No. Spend has been slower than
expected as product development work is slightly behind schedule and it has taken longer
than planned to finalise the grant agreement to pay for work already completed on the
Inception Study. We had also anticipated trust fund resources being to support an early
reinsurance arrangement with WINCROP, but this did not happen for a variety of reasons
outside of the project’s control.
2.2 Key cost drivers:
DFID contribution to the programme is £1.5m, broken down as follows:
£ ‘000
Monitoring and Evaluation
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Disaster Risk Reduction activities
95
MiCRO / WINCROP product development
176
CDB MDTF administration costs
75
Underwriting capital for Caribbean Agriculture cell in MiCRO
1,090
At this stage, the only costs incurred have been on consultancy services for product
development (through CaribRM, part of the MiCRO technical team) and the CDB’s
administrative overheads (deducted upfront). These costs are considered reasonable at this
stage, but pace of delivery must improve over the coming years.
Other cost drivers will become more important as the insurance cover is implemented.
2.3 Is the project on-track against original timescale:
No. Progress is slower than anticipated in the agreed workplan. This is partly because of
protracted discussions within MiCRO on product development, as well as delays at CDB in
agreeing contracting and payment procedures without which further design work cannot
proceed. Overall, progress is expected to be caught up in the next few years and no charge is
required to the targets.
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3. Evidence and Evaluation
3.1 Assess any changes in evidence and implications for the project
Assumptions used in the project design and theory of change are still valid (based on other
insurance development work underway and the findings of the Inception Study).
3.2 Where an evaluation is planned what progress has been made?
The programme will be subject to an evaluation in due course. We had intended this
evaluation to also cover other DFID support to MiCRO – Kore W in Haiti. It may also be part
of a new ‘Disaster risk financing and insurance: better evaluation & evidence’ project of DFID’s
Humanitarian Innovation and Evidence Programme.
4. Risk
4.1 Output Risk Rating: Medium
The log-frame rates the risk of Outputs 1 and 2 as medium, with Output 3 being Medium-High.
This has not changed since the project was agreed.
4.2 Assessment of the risk level
The risk level should be increased to Medium-High because most of the risks originally
identified in the business case either remain valid or have increased, and another one has
been identified:
Risk 1: Low demand for insurance (Some banana and other farmers do not want (or
cannot afford) to spend money on insurance) – remains a real risk, particularly with respect
to the ability of MiCRO to develop an insurance product that farmers can afford/are prepared
to pay for in a climate context that is recognised as increasingly ‘risky’. Ministers of Agriculture
and other senior officials have been clear that cover should not be subsidised, and product
development is not advanced enough yet to be able to indicate prices. However, other
agricultural insurance around the world is heavily subsidised to enable it to be affordable, and
so too is the other MiCRO support in Haiti.
Risk 2: Mismatch between insurance payout and damage (Mismatch between loss of
policy holder (MiCRO) and the payment under the insurance contract (WINCROP) means that
trust fund capital base is drawn down too quickly and insurance become unsustainable) –
whilst the agricultural insurance is not yet operational, this basis risk (‘mismatch’ between
policies) has a major issue with MiCRO’s cover in Haiti (where Tropical Storm Isaac and
Hurricane Sandy effectively exhausted the capital base in the trust fund when there were huge
numbers of basis risk claims under TS Isaac and no parametric payout).
Risk 3: Natural Disasters (A severe series of bad weather events depletes the capital base.
This ratio will be increased by increasing re-insurance if collections are more than
disbursements and more income is received) – as above for Risk 3.
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Risk 4: Funding (Funding does not materialise from other donors. Reduced potential to
expand insurance to other crops and elsewhere in the region) – this Risk to be expanded to
cover Available Resources, as (despite new support from CIDA), there remains a risk that
donor support will not be able to match expectation, and also technical capacity to develop the
product might be too stretched in the face of competing other demands.
4.3 Risk of funds not being used as intended
Low risk with respect to fraud and corruption. CDB’s management procedures remain robust.
4.4 Climate and Environment Risk
This programme is focused entirely on promoting climate and disaster resilience by
transferring (via reinsurance) residual risks (after disaster risk reduction efforts) from natural
disasters. It is expected to have a significant positive impact on small farmers’ ability to
recover after disasters such as tropical storms.
5. Value for Money
5.1 Performance on VfM measures
Efficiency, effectiveness and overall impact relative to our investment:
The product is still at an early development stage and has not yet been implemented – it is too
early to gauge effectiveness and overall impact. To date, the quality of the consultancy inputs
appears reasonable, with the more detailed design work still to be started.
5.2 Commercial Improvement and Value for Money
The MiCRO technical team (particularly CaribRM) are responsible for all work completed to
date. Going forward, additional agricultural insurance expertise will be needed (to be sourced
as consultancy in line with CDB’s own regulations). Reinsurance will be procured via a broker
to ensure best value for money.
5.3 Role of project partners
Performance of MiCRO as DFID’s implementing partner and against the log-frame indicators
has been reasonable. After initial delays agreeing the methodology within MiCRO, good
progress is now being made. The technical team are approachable and responsive, and
partners are actively feeding in views and contributing to product design. CDB’s performance
has also been reasonable, although the negotiations over the contracting to finance product
design have been protracted and are now delaying progress.
5.4 Does the project still represent Value for Money : Yes – progress has been slower
than anticipated and some of the milestones will be adjusted, but overall targets and therefore
unit costs remain valid.
5.5 If not, what action will you take? N/A
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6. Conditionality
6.1 Update on specific conditions : None
7. Conclusions and actions
After a relatively slow start in early 2012 (whilst MiCRO decided what approach to take on
product development), the programme has now gained momentum. Initial scoping work
(agricultural context, potential aggregators) has been collated in the Inception Study and
preparations are underway for Phases 2 and 3 (grant agreement with CDB, detailed Retail
Market Analysis and product design). Partnerships with regional organisations (such as the
Inter-American Institute for Co-operation on Agriculture (IICA)) are being developed, and
potential joint initiatives (for example with the World Bank on insurance for coffee in Jamaica)
are being explored. The MiCRO technical team and Board are supportive of the concept.
The multi-donor trust fund to support the development and implementation of the agricultural
insurance is in place (agreed by the CDB Board in December 2011). There is strong interest
in the concepts of agricultural insurance being developed, as well as in MiCRO as an
organisation and we expect that insurance, their work and this agricultural insurance progress
to continue and accelerate. Other donors have also shown considerable interest – CIDA has
confirmed a general contribution of US$1m and the EU has earmarked €600,000 as potential
support. It is highly likely that other donors will join in rolling out works in other countries.
Recommendations:
1. Whilst no changes are recommended to the substance of the programme, an
adjustment is recommended to Output Indicator 3.1’s 2014 milestone to reflect likely
slower than anticipated pace of expansion. No changes are required to the overall
targets.
2. CDB is becoming more involved in the product development process, and this is to be
encouraged. Recommendation to formalise the engagement between CDB and
MiCRO, and to ensure that the revised Trust Fund Agreement and subsequent Grant
Agreement with MiCRO are agreed as soon as possible in order not to delay progress.
3. Maintain close supervision of MiCRO’s product development to ensure that momentum
and progress against the agreed workplan is maintained, especially in light of the
growing number of competing demands on the technical team’s time. It is also
recommended to develop an overarching MOU between MiCRO and DFID to set out
the framework for our partnership (including reporting and publicity).
4. Ensure that MiCRO continues to build cross-linkages with relevant regional
stakeholders (for example, the Food and Agriculture Organisation (FAO) and InterAmerican Institute for Co-operation on Agriculture (IICA) as well as with other insurance
and risk transfer initiatives (such as Munich Climate Insurance Initiative (MCII) and
World Bank to ensure synergies and minimise duplication of effort.
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8. Review Process
This annual review was informed by reports from MiCRO, discussions with the MiCRO Board,
MiCRO technical team members, CDB, senior officials and other donors (CIDA) and regional
organisation (IICA).
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